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March 2004: Volume 46, Number 3

Rich Clack Talks Back on Consolidation & Tanks
by Carlos David Mogollón, WC&P Executive Editor

The following is a talk we had with Rich Clack, president of Clack Corp., of Windsor, Wis., regarding industry mergers and acquisitions and the recently proposed buyout of WICOR/Sta-Rite by Pentair Inc. In 2001, Clack—then a large distributor of tanks for Pentair's Structural—switched to tanks by Park International, which was acquired by Sta-Rite in 2000. Here is our interview:

WC&P: I'm writing about the ongoing consolidation in the market, particularly the WICOR/Sta-Rite pick-up by Pentair and everyone now waiting to see who's going to buy Culligan. So, I was looking for comments on what this means to the different players in the chains of supply and the dealers.

Clack: We've got a great interest in what happens with the Pentair/Sta-Rite deal because we distribute the Park tank. Three years ago, we broke away from Pentair's Structural Fibers to distribute the Sta-Rite Park tank. So, we've got a lot of interest in what's going on here. We're going to take a real cautious look at the implications of that particular buy. We don't know if, when the antitrust people look at it, what they will find.

WC&P: You've got to play it open-handed there anyway, correct?

Clack: Well, we've got to be sensitive to what's happening. I think that, in general, consolidation limits competition. When competition is limited, it affects the generation of new ideas.

WC&P: Diversity of products, etc…

Clack: Yes. Pentair now will have nearly 100 percent of the mineral tanks that presently go to assemblers or OEMs in the United States.

WC&P: Because they also picked up K&M Plastics last year too?

Clack: Yes. I think it would be accurate to say Pentair purchased Sta-Rite for the pumps and the pools business and the water treatment division came along with it. But, I don't think that Pentair Water is all that unhappy to buyout competition. We need to keep in mind, though, that competition brings innovation. If you look historically, one of the reasons the independent assembler prospered was the competition between valve companies in Milwaukee between Autotrol, Fleck, and Erie as well as Kinetico in Ohio. Where, in my opinion, the Culligans and Lindsays (now EcoWater) of the world have their own captive dealer network—a lot of the innovation in control valves, mineral tanks and, to a degree, brine tanks came from competing with Culligan and Lindsay. One concern is that if there are not a lot of sources for the different components that go into our industry's equipment, innovation could be limited. Also, when a component manufacturer has a lot of market share, they've got to be careful. If they don't price the products equally to all the different customers, that are generally the same size, their pricing strategy could determine whether an individual company is competitive or not.

WC&P: Any prognosis from you on Culligan?

Clack: I heard one, for whatever it's worth. Recently, I heard Pentair.

WC&P: I didn't hear Pentair, although that's one I thought might be interested. One I heard was Blackstone/Apollo.

Clack: I haven't heard that one. That makes sense though as an investment group.

WC&P: It also owned Culligan before. And then I heard Dick Heckmann, not USFilter, but Heckmann as an individual investor.

Clack: That's interesting. Both of those make sense. We had heard for months and months that it was going to be some sort of investment group.

WC&P: These are just supposition, of course—third- and fourth-hand rumors. In reality, no one really knows who might pick up Culligan—not even the dealers.

Clack: True.

WC&P: The dynamics of business may change only gradually, but a franchise dealer sometimes never knows when he or she is going to have a new corporate owner to deal with, regardless of the franchisor.

Clack: Yes. A lot of people think the Culligan name is still very valuable, whether it is serving its network of dealers or marketing its products to the big box stores.

WC&P: If you look at the late '90s and earlier this decade, Culligan and its dealers have somewhat been at war within themselves on that whole issue.

Clack: That would be an understatement. Some MBAs from outside our industry believe everything should go from the manufacturer directly to the big box.

WC&P: Thankfully, that's calmed down in recent years. And John Packard, their biggest independent dealer, seems to be feeling good about whoever may come in next.

Clack: Right.

WC&P: And the standard argument against the big box trend has been that these are not simple appliances. These are not just plug-and-play units that can be installed and you never need worry about them until it needs to be replaced.

Clack: Exactly. Point-of-entry water treatment systems are more complicated to correctly select, size and install than an appliance that you simply plug in. And that's also largely true for reverse osmosis systems.

WC&P: At the same time, when I look at having an RO under the sink and have somebody come out to change a filter and they charge me $70, then I see how much replacement filters are offered for at Home Depot—that gives me pause.

Clack: I know, but at what point do you say, "I don't want to get on my hands and knees to try and figure out what replacement filter to buy."

WC&P: Yes, but it makes a consumer look at DIY—do-it-yourself—offerings and ask, "Can't I just screw this in, rather than take the whole thing apart?"

Clack: Depending on your comfort level, there are things you do with DIY and things you don’t. In many cases the water treatment professionals that we work with are trying to make their tent bigger to lessen the potential impact of DIY competition. Water treatment professionals are bringing in light industrial RO, maybe bottled water, rentals…

WC&P: Pool water service, coolers, water vending machines, etc.

Clack: Yes, the water treatment professionals are growing. For some of the guys that sit behind the desk and are waiting for the order for a softener on clean hard water, it's going to be tougher. Water treatment professionals willing to add value and service to their product mix, we feel, will continue to grow.

WC&P: With Pentair at $1.2 billion and WICOR roughly half that and positioned very similarly, I would imagine there's some duplication of services that would likely have to be weeded out if it were to come on board at Pentair.

Clack: Yes, I believe they're looking toward huge synergy and cost reductions on the pump side.

WC&P: If Pentair has virtually "100 percent" of the tank market, can it keep Structural, K&M and Park.

Clack: At this point, I really don’t know.

WC&P: In the short term, one answer; in the long term, another? It might just wind up an amalgamated collection of brands tailored for different aspects of the market. I imagine they're going to be working hard to mesh that all together well to avoid mistakes of other companies in the past.

Clack: You might be right. We're hoping that a number of people will look at Clack a little more seriously for products—just to have a second source—because it looks like we're going to be one of the few family companies left standing.

WC&P: One of the last of the independents, so to speak.

Clack: We are.

WC&P: But you have agreements with Hellenbrand and you work with a couple other companies closely.

Clack: No, we have no agreements. We work as a supplier to most independent water treatment professionals.

WC&P: I meant more so as an informal thing.

Clack: We have great customers that we service. And we have a close working relationship with most of those, both personal and professional. But personal only goes so far. We still have to provide the value, service, and innovation that our customers have come to expect of us.

WC&P: Well, one thing's for sure, it'll be interesting. Good luck and thank you for your time.

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